Reasons For Google's Declining Cost-Per-Click Rates

Google’s earning announcement a few days before trembled the stock market and shook up the tech industry. If that happens often the tech bubble will burst even before it reaches its peak.

Google claimed that this decline is because of the rapidly growing Mobile Market. This became apparent in the fourth quarter of 2011 when Google reported a year over year decline in CPCs. Google reported an 8% decline in CPC for Q4 2011 that followed by an even steeper decline of 12% in Q3 2012.

Many researchers and analytics are curious to know if this decline is actually caused by the rapid growth of Mobile or Internet conversions are not as big a deal as it was thought earlier.

A recent study by RKG Digital showed that 13% of the traffic coming to Google is from Mobile/Tablet which conceded with the steep increase in mobile earnings from $2.5B to $6B this year. Though Google’s Senior Financial Officer cleared it further by say that a significant share of these earnings come from Play Application downloads. Google claimed that this increase is because of the drive towards mobile searches which in result are decreasing Desktop searches and hence decline desktop CPCs.

I think stock analysts become very narrow when it comes to analysing companies like Google and scare themselves and stock holders to retreat.

TBG Digital released a report representing 5 major regions of the world with decline or increase in CPC. I presume Canada and United states have faced the biggest decline because of increase in the use of Mobile Searches and maturity over desktop searches while adoption within UK have been steady which resulted in being CPC decline very slow. Growing markets like France and Germany still face a rise in CPC which probably is because these markets are still growing and have not reached their tipping point where their turn to Mobile searches would increase.

It is interesting to understand what is driving these Mobile Searches as Google reports do not mention any details on whether these are caused because of the increasing tablet or mobile use or a reduced interest in desktop searches or declining conversions.

I was reading a report by Rimm-Kaufman Group which analysed that in fact most of the mobile searches are brand terms which carry a lower CPC rate. Brand searches makeup up a large percentage of mobile traffic compared to desktop traffic. That represents the dropping of desktop CPC and the increase in searches on tablets and mobiles.

It is important to note that these mobile clicks reports are in their very early stages and their comparison with conversion rates are yet to be qualified. I think as this evolution happens and the process solidifies we would have a clearer picture of how consumers are using Mobile searches and whether that’s what impacted CPC rates.

1- What we might have overlooked in Google reports are other possible factors affecting the steep decline in CPC. According to Google’s report the Click Through rate increased 39% in Q1 that is the highest since 2007 – Google algorithm reduces your CPC if your click through rates are on a rise.

2- The second factor affecting this could be the rapid variations in paid listing on Google SERPs. Google aggressively started testing display ad listing variations back in 2010 and since than it has been testing different variations across its SERP results. This rapid change and inclusion of different product listings could be a factor affecting lower CPCs.

3- The third possible reason could be the shift of brand awareness. With the rise of social media brands are pushing direct communication across all social media channels. That brand enforcement and interaction with consumers could lead to increased brand only searches which evidently have lower CPCs thus decreasing overall CPC rates.

4- And Lastly Google has pointed out foreign exchange factors effecting as a contributing factor to their CPC decline. It isn’t a surprise as Google’s international earnings amount to half of their overall income.

It would be interesting to see if lower revenue reports result in increased CPCs though they can easily do that. This backlash could also end up with Google not updating their search results so very often. Whatever the decision Google takes it would be interesting to see how and where search industry goes within the next year.

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About the author

Lorna is responsible for acquisition marketing at Adthena, communicating their award-winning product and generating demand. She has developed her career in fast-paced, start-up environments, including two tech track 100 companies and is passionate about translating technical information into stories that excite and delight.

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